© Reuters. Traders work on the ground on the New York Stock Exchange (NYSE) in New York City, U.S., January 23, 2024. REUTERS/Brendan McDermid/File Photo
By Lewis Krauskopf
NEW YORK (Reuters) – Assets in cash market funds are rising to start out the 12 months, difficult some expectations that buyers are set to pour money on the sidelines into shares and glued earnings, JPMorgan strategists stated on Thursday.
So far this 12 months, taxable U.S. cash market fund (MMF) balances have elevated by $75 billion, JPMorgan mounted earnings strategists led by Teresa Ho stated in a be aware. By distinction, such funds have seen seasonal outflows at first of the 12 months basically over roughly the previous decade, the strategists stated.
The rise in property is “challenging the view that the $6 trillion of cash sitting in MMFs will rotate into alternative assets such as fixed income and/or equities,” the strategists stated within the be aware.
Last 12 months, cash market fund property rose by over $1.1 trillion, or 22%, “one of the largest increases seen in the past decade,” JPMorgan stated.
Some count on outflows this 12 months, particularly if the Federal Reserve delivers the speed cuts it has penciled in for 2024, pushing down yields and making the funds much less enticing to buyers.
However, in prior easing cycles, cash market funds continued to see inflows even when the Fed started to chop charges, based on JPMorgan’s evaluation of three such cycles since 1995.
“This makes sense, as MMF yields tend to lag yields of direct cash alternatives such as T-bills when the Fed starts to cut rates, thus attracting flows from other liquidity alternatives,” the strategists stated in a be aware.
Further, the strategists stated they consider a lot of the money in cash market funds is “core liquidity” amongst institutional and retail buyers — used for money administration wants — versus an funding asset class that’s a part of an funding portfolio.
“We think the amount of core cash in MMFs is around $5.5 trillion, which leaves about $500 billion susceptible to flight risk, particularly from retail investors,” based on the be aware.
Overall, the strategists stated they assume cash market fund property will stay elevated in 2024 and don’t count on “meaningful” web outflows.